When the Expected Value is Unexpected

Department of Electrical Engineering Seminar

When the Expected Value is Unexpected

B. Ross Barmish 
Research Professor 
Boston University

Motivation for the research to be described in this talk stems from the following fact: The expected value of a random variable X, denoted E(X), is often inconsistent with what human beings may actually expect. This is particularly important when predictions involving life-threatening situations arise. To bring this issue into sharp focus, this seminar begins with a set of questions related to the recent rampage of Hurricane Irma from the Gulf of Mexico into in the State of Florida. If the use of empirical data leads to an expected value forecast of storm surge wave height which is unduly pessimistic, will the "boy who cried wolf" effect be in play the next time a hurricane approaches the mainland? On the other hand, if the formally calculated expected wave height is too optimistic, might it be the case that many will take inadequate protective measures? Based on such considerations, we define a new alternative to E(X) which we believe is quite useful for "mission critical" situations with downside risk being of paramount concern. We call this new metric the Conservative Expected Value and denote it by CEV(X). In this talk, we provide the technical definition of the CEV, compare it with the classical expected value and describe some aspects of the rich mathematical theory which accompanies it. We also include a description of some of the studies we have conducted using the CEV with historical data.

B. Ross Barmish joined Boston University as Research Professor in the Department of Electrical and Computer Engineering in early 2019. Prior to joining BU, he held faculty positions in engineering at the University of Wisconsin, the University of Rochester and Yale University. From 2001-2003, he served as Chair of the EECS Department at Case Western Reserve while holding the Nord Endowed Professorship. He received his Bachelor's degree in EE from McGill University and the M.S. and Ph.D. degrees, also in EE, from Cornell University. Throughout his career, he has served the IEEE Control Systems Society in many capacities and has been a consultant for a number of companies. He is the author of the textbook "New Tools for Robustness of Linear Systems" and is a Fellow of both the IEEE and IFAC for his contributions to robust control. He received two Best Journal Publication awards, each covering a three-year period, from the International Federation of Automatic Control and has given many keynotes and plenary lectures at major conferences. In 2013, he received the IEEE Control Systems Society Bode Prize. While his earlier work concentrated on robustness of dynamical systems, his current university research involves building a bridge between feedback control theory and trading in complex financial markets. In addition to this academic pursuit, in his capacity as CEO of Robust Trading Solutions, his work involves transition of stock-trading algorithms from theory to practice and government sponsored research on the NASDAQ Limit Order Book.

Thursday, November 14
4:00 pm
Room 107
Mason Laboratory